Bank Secrets Can Do Investors a Service

By

John Carney

Updated June 30, 2014 11:56 p.m. ET

Banks have largely stopped making a very common type of loan. Investors should take note.

In a recent paper titled "Banks As Secret Keepers," four economists argue that banks are necessarily opaque institutions, concealing their portfolios and concentrating on hard-to-value assets. The reason: When investors and creditors can observe the performance of a bank's assets too closely, its liabilities become volatile and...